Jackson businesses checked for taxable equipment

Jackson County launched a comprehensive audit two years ago to make sure businesses are paying enough taxes on all their equipment and machinery.

So far, more than 300 have been audited, reaping an additional $90,000 in annual tax revenue.

Just what counts as taxable equipment? For a law office, that might mean desks, telephones and computers, while for restaurants, it means their ovens, dishwasher and knife sets. For factories with lots of big machinery, or for a contractor with a fleet of high-dollar bulldozers, the equipment tax surpasses their regular property tax bill.

All together, businesses in Jackson County listed nearly $130 million in equipment in 2009, reaping $361,000 in taxes.

Jackson County hadn’t done an audit in about 10 years. Tax Assessor Bobby McMahan said it was time for another one.

Jackson Paper pays more in equipment tax than any other business in the county. As a result, it was among the first targeted by auditors. In fact, all businesses in the top 50 for their equipment holdings were put at the top of the list.

“That’s no secret — of course they are going to pull them,” McMahan said of the big guys. But eventually, most of the businesses will be audited.

“Our intention is to have everyone audited. We are not picking and choosing,” McMahan said.

But McMahan concedes there are some small businesses, like a single accountant working out of his home with little more than a desk, chair, phone and laptop who will escape the audit.

McMahan said the goal is to make sure everyone is paying their fair share.

“It is not an ambush at all. It is not an ‘Ah-hah! Gotcha!’ thing. It is just an equalization process,” McMahan said.

McMahan estimated 75 to 80 percent of businesses don’t see their equipment taxes change as a result of the audit.

Equipment audits of businesses are becoming increasingly common.

Counties are also looking for extra revenue wherever they can find it, now more than ever. The audits are also simpler than ever. Firms that specialize in business equipment audits actively solicit counties with a no-lose pitch. The county pays nothing up-front. The firm works solely on commission.

The firm hired by Jackson County, Tax Management Associates out of Charlotte, gets a commission of 35 percent. Since it began the audits in late 2008, the firm has uncovered nearly $90,000 in underreported equipment and got to keep $30,000 of that as payment. It only gets commission the first year, while the county continues to collect taxes annually on what was uncovered.

So far, the firm hasn’t gotten any commission on its audit of Jackson Paper since a portion of that bill is still being contested. (see related article)

Businesses are supposed to send in a list of their equipment and its value to the county tax office each year. Jackson County has three employees in the tax office that oversee more than 1,050 accounts for business equipment. But the county has no real way of knowing whether a business has listed everything it should, or whether it is accurately describing it, without doing an audit.

McMahan said counties rely on the firms for their expertise. Knowing what a piece of equipment is, let alone what it’s worth, can be tricky in specialized fields. McMahan joked he wouldn’t know a vacuum cleaner from an MRI. The same goes for factory machinery.

“They are familiar with all kinds of industrial equipment,” McMahan said of the auditing firm.

Another challenge is making sure there aren’t businesses operating under the radar.

“We use the newspapers, we use the Internet, we use the phone book. We have staff members that physically get out on the street and ride around,” McMahan said.

They keep a running tally of new businesses that open over the course of a year, and come tax time, they check to see that the business files.

Who’s paying the most?

In 2009, these were the top six businesses in Jackson County for the dollar value of their equipment and machinery.